Govt sticks to guns on fuel prices

Govt sticks to guns on fuel prices

The Jakarta Post, Jakarta

Despite recommendations from some economists and businessmen that
fuel prices should again be hiked to prevent the ballooning fuel
subsidy payments from undermining the economy, the government is
yet to consider such an option, according to the finance
minister.

However, Minister of Finance Jusuf Anwar admitted that the
fuel problem was already creating a fiscal dilemma, forcing the
government to consider another revision of this year's fuel
subsidy, as well as formulating a more appropriate fuel subsidy
scheme in the future.

Jusuf said an upward revision within the budget assumption for
the fuel subsidy expenditure was highly probable, as the
government had already spent some Rp 46 trillion (US$4.7 billion)
in fuel subsidy payments to the state oil company -- more than
half of its full-year allocation.

"If oil prices stay at current levels around $60 a barrel,
then the remaining allocation might only be enough for another
three and a half months, while we still have another six months
ahead of us," said Jusuf on Thursday.

This year's state budget allocates Rp 76.5 trillion to pay for
the fuel subsidy, based on an average annual oil price of US$45 a
barrel and a rupiah exchange rate of Rp 9,300 per U.S. dollar.

The government may submit the final budget revision right
after it submits its first semester budget report to the House,
scheduled for August, Jusuf added.

A recent surge of oil prices to above $60 a barrel, a slumping
of the rupiah to Rp 9,800, and the country's enormous 59.6
million kiloliters of fuel consumption -- predicted to grow by 10
percent, could push the fuel subsidy payment this year to over Rp
120 trillion.

The situation forced the government to launch a public energy
conservation movement earlier this week, although many have
criticized it as ineffective, calling instead for the government
to reconsider its fuel subsidy policy and hike fuel prices again.

Adding to the chorus of calls for domestic fuel price hikes --
spearheaded by the Indonesian Chambers of Commerce and Industry
(Kadin) -- was Hadi Soesastro, executive director of the Centre
for Strategic and International Studies (CSIS).

"The soaring oil prices actually reflect the real condition of
the world, and it is natural that most countries have time lags
in adjusting with the condition," he explained.

"But it is very difficult for us to have even a slight
adjustment at all, because we have a huge price gap between the
domestic and international price."

Since the price gap was so great, Hadi said it would be
adequate at the moment to raise fuel prices gradually toward a
level that reflected at least 50 percent of the international oil
price.

"Politically, it will be difficult for the government, but
it's a must. The government has to come up with a way to convince
the people about the urgency in hiking the price of gasoline and
diesel, at the same time preparing another low-income assistance
fund in the areas of health and education to mitigate the price
increase impact on that group of people," he said, adding that
the best way to put downward pressure on fuel consumption was by
making it more expensive.

Jusuf said he understood such views, but was not yet
considering fuel price hikes. Instead the government was
attempting to cover the fuel subsidy by an increase of state
revenues and energy conservation efforts.

Similarly, head of the finance ministry's economic, financial
and international collaboration studies agency, Anggito Abimanyu,
downplayed the possibility of a rising budget deficit due to the
oil fiasco.

"We will stick to our deficit targets at below 1 percent this
year. Although there will be an additional fund to cover the
excess fuel subsidy costs, state revenues will still be
sufficient to accommodate that," Anggito said after a meeting
with Vice President Jusuf Kalla.

Anggito said the state budget still had a net surplus in this
year's first semester as it spent less money for capital and
other maintenance spending. Anggito refused to disclose the
amount of the surplus.